WOW PERFUME COMPANY

As the controller of WOW Perfume Company, you discover a misstatement that overstated net income in the prior year's financial statements.The misleading financial statements appearin the company's annual report which was issued to banks and other creditors less than a month ago.After much thought about the consequences of telling the president, Mr. JBB, about this misstatement, you gather your courage to inform him.Mr. JBB says, "Hey! What they don't know won't hurt them.But so we set the record straight, we'll adjust this year's financial statements for last year's misstatement.We can absorb that misstatement better in this year than in last year anyway. Just don't make such a mistake again".

Instructions: Fully explain your answer to the following questions.

1.Who are the stakeholders in this situation?

2.What are the ethical issues in this situation?

The ethical issue is the continued circulation of significantly misstated financial statements. As controller, you have just issued misleading financial statements. You have acted ethically by telling the company's president.

3.What must be the right action plan of a controller (or a manager/supervisor) in this situation?